*Who Elected Edward DeMarco?*
**By Phil Hall**
***When I was a kid in school, I learned that the U.S. government consists of three branches – the Executive, the Legislative and the Judicial – that operated in a triangular configuration known as “the system of check and balances.” Somehow or other, that triangle has become a quadrangle, with a fourth entity that doesn’t pay much heed to the other three branches.
****The fourth branch is occupied by the Federal Housing Finance Agency (FHFA), which was created five years ago as the successor for the ultra-incompetent Office of Federal Housing Enterprise Oversight (OFHEO). But whereas OFHEO had endless problems being taken seriously, the FHFA is ignoring popular opinion and constitutional law by unilaterally reconfiguring the federal housing finance environment.
****Last week, the FHFA announced that it established Common Securitization Solutions (CSS) as a limited liability company in the state of Delaware. CSS is an FHFA idea to consolidate the functions that are being replicated by Fannie Mae and Freddie Mac.
****(You may remember Fannie Mae and Freddie Mac – they are the government-sponsored enterprises that went bust in 2008 and were placed in federal conservatorship. Five years later, they are still in federal conservatorship, with no end in sight for that dubious status.)
****According to the FHFA, CSS will have its own chairman and CEO. Most likely, those officers will follow the leads set by the Fannie and Freddie executives and enjoy higher salaries than President Obama’s take-home pay. The FHFA says that Fannie and Freddie will fund CSS – or, to be more specific, the American taxpayers that poured hundreds of billions of dollars into Fannie and Freddie since 2008 will fund CSS.
****And lest we fear that CSS will be contaminated by Washington politics, the FHFA has already signed a three-year lease for commercial office space in Bethesda, Md., and has retained an executive recruitment firm to locate the new company’s executive leadership. This is most interesting – the shutdown federal government had no money to pay death benefits to the families of military personnel killed in Afghanistan or to cover the salaries of the Park Police that prevented a deranged woman from driving onto the White House grounds, but there’s money for new office space and the hiring of corporate headhunters?
****Edward DeMarco, who has been the “acting” director of the FHFA since August 2009, issued a statement that insisted CSS “represents a significant milestone toward accomplishing the goal of building a new secondary mortgage market infrastructure.” Of course, DeMarco’s statement conveniently forgot to mention that this milestone is being achieved without consulting Congress or the White House, let alone getting their approval on this new endeavor.
****I have been involved in the financial services world for a quarter-century, and at no time have I ever witnessed such a blatant disruption as DeMarco’s casual restructuring of the federal housing system. At a time when federal workers are furloughed and agencies are either at half-staff or fully suspended, DeMarco’s FHFA is blithely spending taxpayer money on a project that was never approved by either the Congress or the White House.
****Whether CSS is a good idea or not is irrelevant – what is shocking is that this regulatory agency, run by an interim appointee who has long overstayed his duties, is now functioning as a de facto branch of the federal government. There is no precedent for such rogue behavior, nor should there be any tolerance for this misuse of regulatory authority.
****Of course, the Executive and Legislative branches are so busy throwing mud at each other that they are not making any effort to question the CSS situation; whether anyone will question the legality of the FHFA’s actions before the Judicial branch remains to be seen, but it is probably not likely.
****Nonetheless, the FHFA’s actions need to be held up to scrutiny. It is no secret that the federal government is dysfunctional, but this latest action by the FHFA clearly shows the situation is worse than previously imagined.